Australian wheat prices extended a sharp decline amid ideas that an official update next week to the domestic harvest estimate will prove larger than had been feared, with rains improving hopes for western crops.

East coast wheat futures for January delivery closed at Aus$282.00 a tonne on Friday, down 5.0% in three sessions, far underperforming Chicago wheat, the world benchmark, down less than 0.5% over the same period.

Luke Mathews, at Commonwealth Bank of Australia, said that the drop reflects in part "profit taking from basis traders", but also "forecasts for modest rainfall" the seven-to-14 day outlook in New South Wales, where dryness has reduced crop expectations.

Indeed, fears have reduced that Abares, the official commodities bureau, will on Tuesday when it reveals fresh crop forecasts downgrade its 25.4m-tonne estimate of the wheat crop by the figure up "up to 2.5m tonnes" that Rabobank forecast last week.

'Last cruel joke'

Latest expectations for the crop have been more upbeat, with Lanworth on Tuesday, while downgrading its wheat harvest forecast "on the basis of frost/freeze damage and historically low August precipitation in Queensland and northern New South Wales", pegging the crop at 24.9m tonnes.

"Current soil moisture levels are sufficiently high to prevent extreme drought losses without a turn to unprecedented dry weather, and short-term weather forecasts indicate wet and warm conditions into mid-September in all states," the consultancy said.

Separately, Pentag Nidera forecast the Australian wheat crop, the southern hemisphere's largest, at "close to" 25m tonnes, "despite the regional concerns" in southern Queensland and northern New South Wales.

Dry and hot weather in this area had exacerbated losses from "winter's last cruel joke" - a frost that represented had probably cost "upwards of 500,000 tonnes of wheat and barley and potentially upwards of 100,000 tonnes for chickpeas".

However, "we are not talking a national crop disaster", the Queensland-based trading house added.

'Very good shape'

Most cropping areas in southern New South Wales, Victoria and South Australia "continue to hold good potential – and the forecast rain in September and October will be welcome if it falls," Pentag Nidera said.

"West Australian conditions have improved through July and August, with the south west in very good shape."

Indeed, CBH Group, which handles the vast majority of the Western Australian cereals harvest, on Wednesday raised to 10m-10.6m tonnes, from 9m tonnes, its forecast for its receivals of grains overall in 2013-14.

This figure, which excludes some 1m tonnes expected to be delivered to rival handlers, will include some 6.5m tonnes of wheat.